ASIC targets Australia and New Zealand Banking Group for market manipulation

The Australian Financial Review is today reporting that the corporate regulator ASIC is looking to potentially bring proceedings against all the big banks rather than just Australia and New Zealand Banking Group (ASX: ANZ) for alleged manipulation of a key benchmark interest rate.

According to the AFR, ASIC’s investigations into the activities of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd. (ASX: NAB) in setting the daily bank bill swap rate (BBSW) are ongoing.

The regulator is accusing ANZ Bank of “unconscionable conduct and market manipulation” in intentionally moving the BBSW higher or lower in an alleged attempt to profit from positions it held to the detriment of those holding opposite positions.

The BBSW is a key benchmarket interest rate used in Australian financial markets to price a wide range of money market or other longer-term debt instruments and derivatives that are usually priced a fixed amount above BBSW or with reference to it in some other way.

Higher risk collateralised debt obligations in the form of mortgage backed securities or other bundled corporate debt issuances will often be priced a fixed rate of return above BBSW as the primary money market style benchmark.

ASIC is alleging that ANZ attempted to manipulate the rate higher for example to increase its net revenue if it had an overall long exposure, or vice versa if it had an overall short exposure.

In the past ASIC has accepted enforceable undertakings from European banking giants UBS AG, BNP Paribas and Royal Bank of Scotland after investigating misconduct issues over the BBSW.

If the regulator is successful in proving that ANZ is guilty of multiple breaches of the Corporations Act, ASIC Act and its Australian Financial Services License then the reputational and downstream consequences for the bank and its staff could be enormous.

Investors should follow this story closely as it has potential to snowball further and have a genuine impact on the bank’s overall outlook.

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